Bankruptcy court rules against Charles St. AME

After a heated court battle, last week OneUnited Bank won its claim in federal bankruptcy court for repayment of a $3.6 million loan to Charles Street AME Church.

OneUnited sued Charles Street in 2010 after the church defaulted on the loan. Charles Street then filed a counterclaim to that suit, alleging that OneUnited knew the church could not complete its construction project with the funds provided and therefore would not be able to repay the loan.

“When it made the loan, the Bank did not know the loan would fail, nor was it evident that the loan would fail,” Bailey wrote in his opinion. “The Church has no claim under Chapter 93A for wrongful underwriting …”

OneUnited Chairman and Chief Executive Officer Kevin Cohee said Bailey’s ruling has brought to an end a difficult chapter for the bank.

“The most important thing for us is that the court understands the tremendous effort OneUnited undertook in order to make Charles Street’s hopes and aspirations a reality,” he said. “The bank took the extra step over and over again to formulate a loan that was safe for the bank and the church.”

Cohee said OneUnited has extensive experience in church construction, with more than 100 church loans across the United States and ten in Boston, including the Jubilee Christian Church in Mattapan.

“We’ve had nothing but positive experiences with the church community,” Cohee said. “Churches borrow money and pay it back in a timely fashion. This was an anomaly.”

Community center vision

Charles Street Church acquired the Sky Cap Lounge building in 1999 and secured the loan in 2006 from OneUnited to transform the structure into a community center. The bank and church agreed that the loan for the new building, which Charles Street called the Roxbury Renaissance Center, would enable them to renovate it to the point where the city would award a certificate of occupancy. The church then would secure additional funding to complete its planned build-out analysis of the property.

But Cohee says the church attempted to complete the building renovations in one phase, without the bank’s knowledge.

“Instead of following the bank’s plan, they followed their own plan, which earned them debt,” he said. “They evaded the mechanisms we put in place to monitor them. This deal would have worked, but for Charles Street engaging in behavior they shouldn’t have.”

Public dispute

After defaulting on the loan, Charles Street Church entered into a bitterly-contested public relations battle with OneUnited. The church rallied congregants and community members in protest of OneUnited’s efforts to collect on its loan.

The church used as collateral its puddingstone edifice on Warren Street as well as a row of storefronts and the former Skycap Lounge, which the church sought to renovate with the loan. Additionally, the First Episcopal District AME Church, headquartered in Philadelphia, acted as loan guarantor, claiming it had over $500 million in assets and over $20 million in cash on hand.

Ropes & Gray attorney Ross Martin, who is representing Charles Street, would not say whether the church will appeal the ruling.

“The church is considering all of its options,” he said.

In addition to the loan, interest, penalties and legal costs owed to OneUnited, Charles Street Church owes about $630,000 to Thomas Construction Company, the Dorchester firm hired to build its proposed Roxbury Renaissance Center. Another $450,000 is owed to Tremont Credit Union for a loan to repair the church’s roof. Also, an unspecified amount is owed to fewer than 20 other creditors, according to court documents.

Charles Street has yet to present a plan to repay OneUnited or any of its other creditors. The Church did sell off the former SkyCap Lounge building and the row of Warren Street storefronts to the nonprofit Action for Boston Community Development for $2.9 million. The federal bankruptcy court is now holding those funds in escrow.

In addition to the church building, Charles Street owns a parsonage at 466 Warren Street.